WAYNE O'LEARY

Tax Cuts and Revisionist History

As the Bush tax cut for the undeserving rich was wending its
inevitable way through a largely pliant Congress in early May, the
citizens of Maine and Ohio were treated to an unprecedented and
heavy-handed TV ad campaign aimed at securing the votes of two
recalcitrant senators from those states, Olympia Snowe (R-Maine) and
George Voinovich (R-Ohio). The media blitz, prepared by a right-wing
lobby group called the Club for Growth, was unprecedented in that it
targeted members of the president's own party who had the temerity to
suggest holding the ill-advised cuts to a mere $350 billion over 10
years, half what the White House wanted. It was heavy-handed in that
it employed crude allusions to the recent Iraq war, comparing
senatorial resistance to the "traitorous" French refusal to join the
so-called Coalition of the Willing.

The negative ad campaign, obviously condoned by the
administration (which could have ended it with a phone call), was one
other thing: It was deliberately misleading and played fast and loose
with historical fact, besmirching the reputation of at least one
former president of the US. That president was John F. Kennedy, whose
proposed 1963 tax cut (enacted in 1964 under Lyndon Johnson), was
held up as a legitimizing precedent comparable in every way to the
2003 Bush proposal and in line with Ronald Reagan's 1981 and 1986
supply-side cuts. One TV spot aired in Maine invoked JFK in the
following words, "Tell Olympia Snowe to support the Kennedy, Reagan,
Bush tax policy."

The disingenuous ads failed in their primary objective, which was
to force through the entire $726 billion Bush reduction plan. On the
other hand, they did persuade one of the two holdouts, Voinovich, to
sign on to what was finally enacted, a Rube Goldbergian $330 billion
tax giveaway that the Center on Budget and Policy Priorities says
will eventually cost closer to $800 billion when various sunset
provisions are removed through reauthorization -- something that
will almost certainly take place down the road, since failure to do
so will result in (horror of horrors!) periodic tax increases. So,
the president ultimately got what he wanted: an irresponsible tax cut
that will expand to grotesque proportions in coming years unless a
gutsy Democrat with a ready veto pen sits in the White House.

In the short run, the center-left in American politics can't do
much to stop the manic tax cutters; time and a swing of the political
pendulum will eventually do that, as fiscal conditions deteriorate
and money for popular programs, such as Social Security and Medicare,
is found to be unavailable. For now, Republicans control all branches
of the government, and as always, their knee-jerk response to a
struggling economy is tax cuts geared to the upper- income strata;
it's the only answer the GOP has, the sum total of contemporary
Republican economic policy. And its bound to fail. What progressives
do have the capacity to prevent in the meantime, however, is the
hijacking of their political icons for the advancement of the
conservative agenda.

The growing myth, perpetrated by free-market ideologues, that
John F. Kennedy was a trickle-down supply-sider is as good a place as
any to start. This particular canard probably originated with former
HUD secretary and vice presidential candidate Jack Kemp, who
popularized it in Republican circles in the 1980s and early 1990s. It
was the Kemp mischaracterization of JFKs tax-cut program that the
Club for Growth (whose leading lights include far-right economists
Lawrence Kudlow and Milton Friedman, and National Review president
Thomas Rhodes) latched unto for its own partisan purposes.

The Growth Clubbers, being clever individuals, knew better.
Here's what they didn't tell the public: Kennedy's demand-side
income-tax cut, which was mostly aimed at the bottom fivesixths of
taxpayers, only reduced the top bracket from the 91% rate established
during World War II (a confiscatory level, it can reasonably be
argued) to 70%, still ensuring that the wealthy paid a hefty share;
Bush, by contrast, has reduced the top bracket to 35% (from 39.6%
under Clinton) one of the lowest levels in US history. Moreover,
Kennedy's tax cut was proposed at a time when the federal government
was taking in approximately as much money as it was spending; his
1963 budget deficit was just under $5 billion, compared to Bush's
projected 2003 deficit of over $300 billion, the largest ever seen.
In other words, Kennedy's tax cut was affordable; Bush's is
profligate.

There are other differences. Kennedy maintained a 70% top rate on
unearned dividend income, treating it much like wages and salaries;
Bush, who tried to reward "the investor class" by abolishing dividend
taxes entirely (part of a strategy to eliminate all taxation on
capital), settled on reducing them for high-end -- that is to say,
for most -- recipients from 38.6% to an absurdly low 15%. And
Kennedy, it is conveniently forgotten by supply-siders, actually
tried to enact a higher dividend-tax rate on incomes over $180,000,
an initiative that failed passage.

In addition, Kennedy, whom GOP tax cutters claim Bush is
emulating, made no attempt to abolish the estate tax paid primarily
by the wealthiest Americans, which Bush has succeeded in phasing out.
Instead, he favored a series of proposals geared to ending selective
tax breaks, shelters, and loopholes for rich individuals and
corporations. JFK himself explicitly stated, in his 1963 tax message
to Congress, that his Keynesian reductions (unlike the later
Reagan-Bush cuts) were intended to proportionately favor those "at
the lower end of the income scale."

Time has validated that stimulative approach, whereas recent
history has largely discredited the competing notion that federal tax
cuts on upper-end incomes really spur investment and create jobs.
Bill Clinton raised taxes on the wealthy in 1993, and a boom
followed; George W. Bush lowered them substantially in 2001, and two
million jobs were subsequently lost. This raises the unavoidable
question of whether the latest Bush initiative is a genuine economic
policy at all, or simply a sophisticated form of crony capitalism
with reverse class-warfare implications. As for John F. Kennedy, he
would undoubtedly be addressing the failing economy were he alive and
president today, but almost certainly not with a lopsided,
trickle-down tax plan.